According to Jonathan Clements, of the Wall Street Journal, writing in this Saturday’s Kansas City Star, stock market professionals need to develop their EQ if they are going to be effective in their work.
He cites a study in the journal Psychological Science, in June 2005, which found that people with impaired emotional responses made more-sensible financial decisions. These individuals, who had brain lesions that limited their emotional reactions, were more willing to take gambles in which the potential payoff easily outweighed the potential loss. People with normal emotional reactions get discouraged when they lose and so stop gambling.
Similarly, investors with a strong emotional reaction to market swings often buy and sell at the wrong time and may trade more, thus building up substantial trading costs.
But, emotions can also help, because they provide the motivation to focus on our finances, plan for retirement, save diligently, and avoid excessive risk. While intense emotions can make us more engaged in what we are doing, we also need to understand what’s going on with our feelings, and then limit the impact. It is this need to pinpoint our emotions and manage our responses accordingly, that leads Clements to the conclusion that EQ needs to be honed among the investment set.
John Ameriks, an investment analyst, speculates that it is the greater EQ associated with women that makes them less likely to be involved in the investment field. For example, in a market decline, women may be less likely to act rashly, because they have a better appreciation of why they are uncomfortable with their investments.
Are you in the investment business or were you? Does this make sense? Are you an HR professional in the investment sectors? How do you go about developing EQ among your staff?
Best wishes
